Fill your own ISA first – MoneyWeek

So,shouldyoustartputtingmoneyintooneofthesethingsforyourchildren?

Ibetyouthinkthisisarhetoricalquestion。

Butitisn’t。

Mychildrenhavechildtrustfunds(CTFs)andIneverputapennyintothem。

Itisn’tthatI’mnotconcernedabouttheirfutures。

Iam。

Itisjustthat,rightnow,IvaluemyownfinancialsecurityovertheirfuturefinancialsecurityandIsuspectthatiftheywereuptothinkingaboutit,theywouldtoo。

Whentheyare30or40andinthemiddleofbeingburiedundertheexpenseoftheirowncareers,mortgages,children’smusiclessonsandschoolfees,willtheyreallywanttogetacallfrommesayingI’mabitshortonthemonth’snursinghomefeesbecauseIputtoomuchintotheirJISAswhentheywerethree?

Oddsare,they’lljustcursetheJISA(andme)。

ThefactisthatveryfewpeopleintheUKhaveenoughmoneysaved。

Theirpensionprovisionisgenerallypathetic;theirISAsaren’tusedinfulleveryyear;theirtaxallowancesareunderexploitedandtheiremergencysavingsaccountsaremoreoftenthannotalmostentirelyempty。

Ifthatsoundslikeyou,youcansafelyignoreallexhortationsfromthepresstoinvestinaJISA。

Youcan’taffordit。

Instead,youneedtofocusongettingyourownhouseinorder。

Ifthatisn’tyouandyoucanaffordit,youmightalsowanttothinkaboutonemorethingbeforeyoucallyourbroker。

JustbecauseyouputthemoneyintoaJISAdoesn’tmakeityourmoney。

Theseconditentersthetax-freewrapper,itbecomesyourchild’smoney。

Sonotonlycanyounottakeitbackforanyreasonbuttheygetfullcontrolofitwhentheyturn16andtheycanhelpthemselvestothecashwhentheyturn18shouldtheywantto。

Youmightthinkyouaresavingtowardsthosenastyuniversitytuitionsfees,butwhatifyourchildwithdrawsthemoneyforsomethingelsealltogether?

Mosttraditionalmethodsbywhichparentssavefortheirchildrenallowthemtorationaccess。

TheJISAdoesnot。

YetanotherreasontofillyourownIsafirst。

Still,thisdoesn’tallmaketheJISAcompletelyuseless。

Mostchildrenaresurroundedbyrelativesandgodparentswholiketochuckabitofcashatthemeverynowandthen。

Andiftheyhavethekindofgrandparentstypicaloftheluckygeneration(largehouseboughtcheapinthe1960sor1970s,finalsalarypensionetc。

)andtryingtogetridofcashinordertocuttheirheirs’inheritancetaxbill,itmightbethata£3,600ayeartaxfreeallowanceismorethanwelcome。

Sowhatshouldyou?

arrangeforyourchildtoinvesthisgrandparent’smoneyin?

Thefirstthingtosayisthat,whateveritis,thereisastrongchancethatitwilldisappoint。

Thevastmajorityofadvisersandfundmanagerspersistinbelievingthat,withtherareexceptionofafewtimesofcrisis,stockmarketsonaveragereturnsomethingintheregionof8-10%ayearafterinflation。

Thisisanextraordinarytriumphofrecencybiasoverreality。

Between1980and1999,marketsreturned8-10%ayearinrealterms。

Butmostlytheyreturnmorelikenothing。

AccordingtoTimPriceofPFPManagementifyoustartin1700andlookateach20-yearperiodfromthen,youwillfindthat1980-1999is,infact,theonlyperiodinwhichstockshavemadesuchareturn。

Intwooftheperiodstheymade-6to-4%。

Infive,theymade-2-0%。

Inthreetheymade0-2%andinfour,theymade2-4%。

NoneofthecalculationstheprovidersofJISAswillbebandyingaboutoverthenextfewmonthstoshowyouhowrichyourchildrenwillbeifyougivethemallyourmoneywilltakethisintoaccount(they’llallassumereturnsof6-7%ayear)。

Butyoushould。

Ontheplusside,thefactthatmostchildrenwillturn18notmuchricherthantheyarenowdoesn’tmeanyourshavetoo。

Long-termstockmarketreturnsareverymuchafunctionofbuyingthingswhentheyarecheap,sellingthemwhentheyarenotandpayingthelowestpossiblefeetodoso(itsoundsobviousIknow,buttomostfundmanagers,itreallyisn’t)。

Youdon’twantindividualstocks(toomuchwork)andyoudon’twantjustequities(toorisky)。

Whatyoudowantisagoodgeneralistinvestmenttrustwithanintelligentmanagerthatgetsthebasicsandcoverseverything。

Atthemoment,Icanthinkofthreethatmeetthecriteria:PersonalAssetsTrust,RITCapitalPartnersandBritishEmpireSecuritiesGeneralTrust。



Thisarticle?

wasfirstpublishedintheSpectatoron15October2011?

NakedTextNakedText